Remortgage or Debt Management Plan

Chasingmytail_2

Feel I am chasing my tail. My DH has had to give up work due to his health. Luckily he is covered for approx half his wages by Health Insurance, however, as we were struggling before this we are now in a position where we cannot pay our loans/credit cards each month. We have a huge debt of £60,000 (not including mortgage), I won't explain as I am sure most people on here know how this comes about. Just lets say it happened very slowly over a long period of time until it got out of control and we just kept on going as we always had.

However, we now find ourselves in a dilemma, after we have carried out our budget we find ourselves with approximately £800 a month to pay towards our debts but the monthly payments due are £1,500.

Our mortgage is very small and we only pay £70 a month and it will be cleared in 3 years, except for the shortfall of about £13,000. We decided to remortgage over 9 years (takes us to retirement) for our debts and shortfall in mortgage. Current lenders didn't see this as a problem as we have the income and the equity in our property. We would only be borrowing about 60% of the value of our house. And the payments for this would be about £800. Then came the bombshell we did not pass the credit check. The only thing the advisor could see was one missed payment a couple of months ago to one credit card. This was an error on my part as I paid it into the wrong cerdit card. But she did say there could be other factors in this decision that she could not see. She did advise us to go to another lender as their criteria might not be as strict as hers.

So here is the dilemma. Do we pursue another remortgage or do we bite the bullet and go for debt management plan. Whichever way we go it is going to cost us £800.

I would really like any input anyone can give especially anyone who has been in a similar position.

Useless_with_wonga

I should not remortgage if I were you. The reason being simply that you are turning your unsecured debt into secured debt.
The security obviously being your house by way of mortgage. If you end up struggling to repay a secued debt your home is then at risk where as with a DMP your debt remains unsecured and there is no risk to your home.
Hope that makes sense. Lots of us have been down the remortgage route and it seldom works and more often than not it increases your debt as people tend to spread it out over more years and thus end up paying more back in interest in the long run.
Consolodating your debts by way of remortgage should in my opinion be avoided at all costs.

Chasingmytail_2

Thanks, this is what puts me off the remortgage. The fact that we don't know what the future holds and if I became ill or was made redundant we would be in real trouble. What puts me off the DMP is the harrassment people seem to get from their creditors, especially phone calls to their workplace and also my DH is now in the house most of the time and it wouldn't help his health to constantly get phone calls from these people. Also can you tell me what happens to your debt if the creditors refuse to stop the interest on them. Does your debt keep growing forever more.

Tixy

From what you have posted and the fact that you are worried about what could happen if you lose your income makes it sound like remortgaging is not the right way for you to go. Without a doubt it would put your house at greater risk, and if OH is not well that would seem like another stress that would be hard to manage.

Also how long with OHs health insurance pay out for? is it indefinite or for a fixed period of time.

Have you looked through all your expenditure to see what you can get cheaper or reduce? Obviously I don't expect you can make up the £700 shortfall but the more you have to put towards your debts the better.

With regards to your concern about the DMP route. People generally don't get too much hassle after the first month or so, especially if you use one of the charity DMP providers. Providing creditors are kept informed they should be easily to deal with. You can also send them all a letter telling them not to call and to keep all communication with you in writing.

With regards to interest, whilst nobody can guarantee that interest will be frozen, a lot of people find most of their creditors will agree to freeze interest. Sometimes the creditors who refuse initially will after a while (perhaps after it gets passed on to their collections department or their internal DCA).
In theory your debts could keep growing if the repayments you make are not sufficent to repay the interest but mostly that doesn't happen in practice.

Have you had any professional advice yet? I would do this first before you try another mortgage company. At least talk through your options with one f these - http://forums.moneysavingexpert.com/showthread.html?t=2077631

Good luck

Chasingmytail_2

Thanks again. Luckily the Health Insurance will last until retirement. I have done the budget plan with CCCS and still have one or two things to look at for cutting costs, mainly TV, internet and phone. I am worried that I may have to refresh my budget for petrol, seems to keep rising and I might have underestimated that cost (didn't realise before, guess what, used to put it on credit card). CCCS seems to get a good report on this site so I might go back and ask them a few questions. OH and I are going to go over this again tomorrow night.

Once again thanks for your input.

happyhaddock_2

Hi, hope you manage to get something sorted, we've just started a DMP with CCCS and they've been brilliant, can't praise them enough:T. I've had to contact them a few times with different queries and they've always been really helpful, easy to understand and sympathetic:)